New partners tout 'hybrid model' for supplies

Thursday, March 25, 2010

LUBBOCK, Texas - The MED Group made a move recently to help its members reduce costs related to replenishing CPAP, ostomy, incontinence and other medical supplies.

The savings come through a new MED contract with PPM Fulfillment. The Lincoln, Neb.-based PPM uses a hybrid of "zero inventory" and "contract warehousing" logistics models and HME companies can operate on either, said President Chris Hoffman.

"The hybrid model is the most beneficial for a provider," he said. "Providers can ship their inventory to us from their own warehouse, have it dropped shipped from the manufacturer or simply use the inventory of manufacturer-owned product.  This allows a provider to 'burn' through inventory from multiple sources. This truly allows the most flexibility of all systems."

As orders are generated, they are sent to PPM, which picks, packs and ships the product to the patient. MED and PPM representatives say HME companies that handle their own deliveries incur extra expenses ranging from $50 to $80 per trip.

Teresa Hill, MED's respiratory and sleep product manager, says those extra costs are behind the decision to offer the PPM option to members.

"Costs can vary due to geography and employee costs, but it is safe to say that providers can save up to 20% from their current methods," she said. "If a provider is using multiple shipments to fulfill one order, the cost savings are even more exponential."

Hoffman contends savings can reach 75% with multiple shipments and that "PPM is confident that when providers take a strict analysis of their costs, they will see that shipping costs make up 50% of their true cost." Shipping, labor, inventory management, picking and packing all contribute to provider overhead, he said.

The MED-PPM partnership is emblematic of a trend towards outsourced specialty distribution for CPAP and other supplies in the wake of Medicare reimbursement cuts and stringent compliance guidelines. PPM, Houston-based and Athens, Tenn.-based JaySec all believe they have a successful logistics formula that benefits HME providers.

"There is no reason not to do it," said JaySec COO John Slautterback. "Even if you have warehousing costs under control, you will save money with this model."